Review of 20 Business Incubation Models – Hackett & Dilts Generic Business Incubator Model_2004 (Parts 12-13 of 20)

Hola a todos. Estamos de vuelta de las vacaciones!!! (Hi for all. We are back from vacations).

This means that we are going to finish our Business Incubation Models series very soon. Today I’m going to present a very very interesting and profound model created by Hackett & Dilts in 2004. Actually, it is splitted into two models in our classification. However, it could be considered as one. The model is a universal business incubation model which can be used both in public and corporate purposes. In short, it is structured as black-box: inputs of the process, process activities, and outputs of the process. Authors also present a formula of Business Incubation Process. We think that this is the most successful representation of business incubator among all in the series. So, let’s start.

2004, Hackett & Dilts model (black-box, structure, operations)

Hackett & Dilts Business Incubator Model - The Logic (2004)

Hackett & Dilts Business Incubator Model – The Logic (2004)

Figure 1 – Logic of Hackett & Dilts Business Incubator Model

The logic model of business incubation[1] was described by Hackett & Dilts in 2004. We have separated it from the main model (which is described later) because it shows the structural components of the model. As far as incubators tend to incubate intermediate potential ventures in their early stages of development, and these ventures have the potential to generate jobs beyond the position created by and for the founder; annual revenues can range from negative income up to 10 million dollars, average incubation cycle times lie between two and three years. Hackett & Dilts argue that incubator is the operationalization of a community strategy to promote the survival of new firms. Consequently, “an incubator is an enabling technology, rather than a critical or a strategic technology”.

This critical distinction is not trivial: the underlying value of an enabling technology is a function of the critical and strategic technologies it enables. In systems engineering terms incubator is a support system which enables or moves a system-of-interest (venture which is developed by incubator) along its life cycle (stages of startup). Authors make a very interesting conclusion out of the previous statement:

The mere existence of an enabling technology such as a business incubator does not, in and of itself, necessarily translate into the development of critical and strategic technologies embedded in the products and/or services of innovative new firms; a lack of inputs such as capable entrepreneurs and/or critical or strategic technologies for commercialization might go a long way toward explaining why many incubators perform so poorly.”

Source (Author, Year): Hackett & Dilts, 2004
Purpose of a model: To present key inputs and outcomes of the incubation process.To consider incubator as an enabling technology, rather than a critical or a strategic technology.
Type of a model: Structure model
Abstraction technique: Black-box
Theoretical background: A real options-driven theory, Cambell (1985)
Resources: Inputs: entrepreneurs, technologies and innovations
Processes and practices: Venture development, product development, selection, monitoring and business assistance, resource munificence
Efficiency and effectiveness: Outcomes: growth and survival of the incubatee, viable companies, more jobs and profitable organizations.
Linkages “Entrepreneur – Business Incubator – Innovation Ecosystem”: Entrepreneur / venture is the system-of-interest of the incubator.
Key contribution: An incubator is an enabling technology, rather than a critical or a strategic technology. Business incubation performance is positively related to:1)     selection performance,2)     intensity of monitoring and business assistance efforts.3)     resource munificence.

According to that model if an incubator is organized correctly and fed with the right “raw material”, there is no other way than to produce profitable and innovative ventures, or at least increase their chances for survival. Incubation process is always a dualistic process, which deals with entrepreneur on the one hand, and incubator on the other hand. The most important task in that sense (if the mechanism of support is working properly) is to feed the machine with high-quality, educated, knowledgeable human material known as entrepreneurs.

However, this doesn’t happen very often. Most incubators didn’t become factories of entrepreneurs. Why? Because they can only select people and ideas, but they don’t grow them. They take entrepreneurs out of the pool of resources (human capital of the region) and fight to get the “best of the best”. What all incubators fail to do is to get constant flow of high-quality ideas and people. This is the one of the most important challenges of the innovation industry in general, not only of incubation industry.

Conclusion

This leads us to the conclusion that incubators theirselves will not be capable to create an entrepreneurial revolution in a given region. They are only transformation mechanisms (one possible mechanism).  We need to grow human capital first of all in order to provide this funnel inlet incubators. Consequently, new questions arise:

  • Who should stimulate the appearence of the entrepreneurs in the population?
  • What cultural, economic, political factors should be changed in order to give a rise to the entrepreneurial class? How we should change that?
  • What is the mindset and mentality that should be encouraged?
  • What kind of specialists do we need? and, eventually
  • What are the long-term goals and vision of the region?

[1]  Hackett, S. M. & Dilts, D. M. (2004a). A Systematic Review of Business Incubation Research. The Journal of Technology Transfer, Vol. 29, No. 1, pp. 55-82.

[1] Hackett, S. M. & Dilts, D. M. (2004b). A Real Options-Driven Theory of Business Incubation. The Journal of Technology Transfer, Vol. 29, No. 1, pp. 41-54

2004, Hackett & Dilts, Peters et al., Soetanto model (mixed, process model,  operations)

Hackett & Dilts’ model (2004b)[1][2], shown in the figure above, is based on Campbell etal.’s (1985) value-added incubator model, “an insight that business incubation and venture capitalists’ investment activities share functional similarities, our systematic review of the literature, and fieldwork in North America and Asia”. (Hackett & Dilts, 2004b) They also proposed a holistic vision of the incubation model. Authors used a black box approach, they developed a real options theory, as a way to maintain and complement the model. Main focus of competition in the incubator-incubation industry is the production process (i.e. the incubation process) occurring within the incubator. The basic premises of the model are the following propositions:

  1. Business incubation performance is positively related to selection performance.
  2. Business incubation performance is positively related to intensity of monitoring and business assistance efforts.
  3. Business incubation performance is positively related to resource munificence.

The theory presented by Hackett & Dilts (2004b) defends that the performance of business incubation depends on the incubator’s ability to create options through which the selection of weak-but-promising intermediate potential

firms is happening.Hackett & Dilts Business Incubator Model - Structure (2004)
Hackett & Dilts Business Incubator Model – Structure (2004)

Figure 2 – Hackett & Dilts Business Incubator Model (a) and (b)

In the article Hackett and Dilts even gave a birth to the formula:

Hackett & Dilts - Formula of Business Incubator Performance

Hackett & Dilts – Formula of Business Incubator Performance

, where BIP = business incubation performance, SP=selection performance, M&BAI=monitoring and business assistance intensity; and RM=resource munificence.

Selection refers to decisions concerning which ventures to accept for entry and which to reject. Infrastructure consists of localities, office facilities and ‘‘administrative’’ services. According to Hackett & Dilts (2004b), the existence of a selection mechanism makes potential candidates more demanding with themselves, leading them to self-corrective measures. It also allows potential entrepreneurs to understand that they have to cope with the risks of the new venture.  The model of selection describes the behavior of a venture capitalist.

Business support is associated with coaching/training activities undertaken to develop the incubatees.

Mediation refers to how the incubator connects the incubatees to each other and to the outside world.

Finally, graduation is related to exit policies, i.e. decisions concerning under what circumstances incubatees should leave the incubator. Hackett & Dilts describe their model as follows:

“Briefly, the model indicates that incubatees are selected from a pool of incubation candidates, monitored and assisted, and infused with resources while they undergo early stage development. Outcomes refer to the survival or failure of the incubatee at the time it exits the incubator. Controls include regional differences in economic dynamism, level of incubator development and size of incubator.”

Source (Author, Year): Hackett & Dilts, 2004
Purpose of a model: To explain key processes in the production process of an incubator
Type of a model: Process model
Abstraction technique: Mixed
Theoretical background: A real options-driven theory, Cambell (1985)
Resources: Pool of incubation candidates, incubator internal resources
Processes and practices: Selection, Business Support, Mediation, Graduation
Efficiency and effectiveness: Performance of the incubator is correlated with the intensity and thoroughness of each process. Moreover, outcomes of the business incubator are measured against objectives and established performance indicators such as growth and financial results.
Linkages “Entrepreneur – Business Incubator – Innovation Ecosystem”: No linkages stated
Key contribution: Business incubation performance is positively related to:

We have raised several questions that aren’t addressed by the model:

  • What criteria should be considered at the time of the selection of possible incubatees?
  • Would the existence of predefined criteria contribute to the economic results of incubation?
  • To what extent performance of incubation depends on the incubator’s ability to create options through which the selection of weak-but-promising intermediate potential firms is interesting?
  • What are those performance metrics that are used (growth and financial performance at the time of incubator exit, etc)?
  • How would startup company performance be outside in the real world?
  • How to incubate those target groups that will not be able to pass selection criteria (in rural areas)?

Some critic:

  • It is centered on the incubator perspective, without strong elements of reference or importance to the incubatee, to whom the incubator is supposed to provide services.
  • Nevertheless, there is no agreement on what criteria can be assumed as relevant for the process of business incubation.
  • Another important issue is that not all the models properly highlight external issues, such as location and partnerships maintained. The external environment can strongly influence the incubator, as it will depend on the partnerships gained and maintained with higher education institutions, technology centers and other research institutions.
  • Components seem to be one of the main challenges incubators face in the incubation process. However, to better articulate the incubation process one must consider a wide array of criteria that can encompass the type of incubator, its area of influence, the services provided, and its geographical location, among others.

[1] Hackett, S. M. & Dilts, D. M. (2004a). A Systematic Review of Business Incubation Research. The Journal of Technology Transfer, Vol. 29, No. 1, pp. 55-82.

[2] Hackett, S. M. & Dilts, D. M. (2004b). A RealOptions-Driven Theory of Business Incubation. The Journal of Technology Transfer, Vol. 29, No. 1, pp. 41-54

9 thoughts on “Review of 20 Business Incubation Models – Hackett & Dilts Generic Business Incubator Model_2004 (Parts 12-13 of 20)

  1. Hey, I’m writing my thesis about business incubators – so you could really help me with your great summary! One model that I couldn’t find in your list is the four-phase model of incubation process by Becker & Gassmann (2006), maybe it is worthily to add 😉 Cheers, Sophia

    • Dear Sophia,

      That’s great! What is the topic of your research?

      BTW, thanks for suggesting the process model by Becker & Gassmann. What is the source (caption of the paper, journal)? It would be a pleasure for us if we will put this model here.

      Cheers, Vasily.

  2. I’m writing a literature review on business incubators since 2001 till today (based on the one of Hackett & Dilts).
    The complete source is: Becker, B., & Gassmann, O. (2006). Gaining leverage effects from knowledge modes within corporate incubators. R&D Management , 36 (1), pp. 1-16. Cheers, Sophia

  3. Hello there! This blog post couldn’t be written much better!
    Reading through this post reminds me of my previous roommate!
    He constantly kept preaching about this. I’ll forward this information to him.
    Fairly certain he’ll have a very good read. Many thanks for sharing!

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